The Role of Data in Corporate Financial Planning (FP&A)

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In recent years, corporate America has indeed seen its share of highs and lows, revealing the importance of using financial planning data to adapt to changing circumstances.

The 2020 pandemic and 2021’s “Great Resignation” have shaken up the way companies conduct their day-to-day operations, and a growing emphasis on sustainable and ethical business practices has changed the way executives evaluate their financial goals.

If you’re a financial advisor, you’ll need to understand how to use the right financial planning data. Let’s explore the role that data plays in corporate financial planning and how you can leverage this information to improve efficiency.

The Role of Data in Business Financial Planning: An Overview

In this post we’ll highlight some general trends that include the following: 

  • Decision-making starts with analyzing the right data
  • Data can be used to enhance revenue
  • Financial advisors need to adapt to changing circumstances to thrive
  • The future of finance includes outsourcing, automation, and ESG criteria 

Keep reading for more on these trends.

How to Collect and Analyze Data to Make Sound Financial Decisions

How do you go about collecting financial planning data? Start with a few basic pieces of information, like:

Evaluating Financial Statements

Financial statements are likely your most valuable starting point for gathering data. Look for documents such as: 

  • Balance sheets
  • Cash flow statements
  • Income statements
  • Statement of shareholders’ equity

These documents provide a snapshot of an organization’s history and can be used to identify areas to improve in the future.

Monitoring KPIs

Monitoring Key Performance Indicators of KPIs are one easy and effective way to enhance your plannnning capabilities.  Managing KPIs require businesses to set targets in order to monitor performance against the targets in question.  It is key that businesses choose KPIs that are tailored to their needs.

Evaluating Current Projects

Is the organization currently invested in any projects? If so, it’s important to understand the nature and scope of these initiatives, particularly how these projects are currently impacting the working capital of a business.

Evaluating the Budget

When you take a look at a company’s budget, you’ll get a better idea of its priorities and passions. Basically, you can look at their budget to determine whether their past performance and present goals are in alignment. 

If not, it may be time to find ways to scale back corporate spending or shift gears to properly plan for taxes, payroll, or other non-negotiable business expenses.

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Ways to Use Financial Planning Data to Improve Your Bottom Line

For most companies, the goal of corporate financial planning is simple: to enhance revenue. How this happens largely depends on the industry, though there are still some basic time-honored techniques that apply to a range of companies.

Revenue Forecasting

Revenue forecasting allows you to predict future sales based on historical data. For example, software as a service (SaaS) revenue forecasting deploys a number of methods, relying on data from: 

  • Existing sales pipelines
  • Price-volume assumptions
  • Sales capacity
  • Seasonality and linearity assumptions 

Financial planning analytics demands a careful review of sales data to produce a model that predicts sales trends in the future, which can improve a company’s revenue.

Increasing Retention Rates

According to research performed by Bain & Company, you can increase profits by 25% to 95% just by increasing your customer retention rate by 5%. 

You can use this data for financial planning by evaluating a company’s current retention rate and analyzing the economic impact that occurs when customers fall off the map. This approach also helps managers and sales teams determine the relative value of promoting customer loyalty.

Sales Capacity Planning

Of course, it makes little sense to increase revenue if the organization isn’t capable of meeting increased customer demand. Sales capacity planning is the process of matching demand with existing inventory. Too little inventory and you risk losing sales, but too much inventory can leave assets tied up with overhead and storage. 

Careful analysis of past sales trends and expectations of future demand can help financial advisors make recommendations for the future, bring customer demand and sales expectations into alignment and built out sales commission plans accordingly.

Pitfalls to Avoid When Using Data in Business Financial Planning

Financial planning isn’t always easy or straightforward. Working financial advisors should be cautious to avoid these common pitfalls:

Relying on Inaccurate Financial Planning Data

Sometimes the data you receive from a company will be incomplete; other times, it may be inaccurate. Before making financial planning recommendations, you may want to evaluate the company’s own record-keeping processes to ensure you’re working with the best available data.

Let’s face it; not every financial advisor will be well-versed in every industry. For example, you may or may not have the background to understand trends in AI-based technology and its impact on the fintech industry. 

If you don’t have a working knowledge of industry trends, you simply won’t have the data needed for financial planning analytics.

Leaving No Room for Margins

You have to expect the unexpected. In the last few years, businesses that thrived were able to do so by adapting to an unprecedented set of circumstances. 

Pandemic corporate budgeting has become an important part of every industry. Financial analysts must likewise leave “margins” in their financial advice to allow companies room to shift gears and adapt to unexpected challenges.

The Future of Data-Driven Business Finance

What does the future hold for data-driven business finance? There are several key trends worth highlighting:

Emphasis on ESG Metrics

Many companies are focusing on more than just their bottom line. Environmental Social Governance (ESG) refers to the ways that businesses meet criteria that show their commitment to sustainable, ethical business practices. 

Functionally, this means that companies must also gather and report data to maintain transparency. Companies can already rely on The Morgan Stanley Capital International (MSCI) Rating as well as the Sustainalytics ESG rating, and it’s likely that we’ll see this emphasis continue to evolve.

AI and Automation

We’re rapidly heading for a future governed by advanced software and digital platforms that enhance reporting and record-keeping processes. That’s a good thing since it means that financial analysts can have access to the best, most up-to-date financial planning data available.

Outsourcing Will Continue

As of 2021, roughly 1 out of 8 companies (12%) chose to fully outsource their payroll. That number will likely increase as more companies farm out their administrative processes and bookkeeping to separate firms. 

This development means that financial analysts may have to adapt by pooling data from multiple sources, and the ability to integrate these processes will enhance the ability to adapt and grow.

A Case Study: How Data-Driven Financial Planning Can Work

The benefits of financial planning analytics aren’t just theoretical. Believe it or not, data-driven analysis lies behind McDonald’s all-day breakfast. Applied Predictive Technology (APT) used data to predict that doing so would attract new customers and increase revenue. 

Companies like Starbucks and Wawa have similarly benefited from taking a closer look at their sales figures and making decisions that improved their bottom line.

Bottom Line: Make Data Work for You

The right data can make all of the difference in the world of corporate finance. In our business agility guide, we highlighted the ways that corporations can learn to adapt to change, but those strategies are enhanced with the right data. 

While the financial industry is ever-changing, there will always be a need for trained professionals who can understand the trends and provide comprehensive financial analysis. 

At QBIX Analytics, we rely on 25 years of experience to analyze corporate financial data and create a roadmap for the future. Learn more about how we use Adaptive Planning or to schedule a meeting or learn more about how we can lead you into the future.

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